I am the CEO and co-founder of RentSpree, and I write about real estate. RentSpree rediscovers how people rent houses.
The cost of a house in the United States is unprecedented. According to the National Association of REALTORS®the median house price rose by 15% compared to last year.
But how exactly is this housing market affecting millennials and Gen-Z? Millennials are currently the largest generation in terms of population size in the country. The average age of a homebuyer this year was 45, compared to 31 in 1981. As homebuyers get older and older, other milestones such as having children, getting married, and retiring are pushed back.
Millions of Americans wonder if they will be forever tenants. In fact, “18% of millennial renters say they plan to rent forever” (up from 11% in 2018), according to Research from Apartment List. This is excellent news if you are a real estate investor, but not so much if you are the average American trying to buy a home. Renting forever can trigger a huge shift in the housing market for investors. It is very possible that the earning potential for real estate investors will only increase year after year.
What caused this challenging housing market?
There are six reasons for the rise in housing costs.
• Volatile shifts in mortgage rates.
• Low housing stock.
• Increase in the cost of building materials.
• Gas prices.
• High inflation.
• Businesses and cash offers.
At the start of the pandemic, the real estate sector saw historically low interest rates from 2.65% in January 2021, which continued through 2022 and then peaked at 5.78%. The home inventory couldn’t keep up with demand, and then supply chain problems caused a rise in the cost of materials to build homes. Americans are now experiencing the highest inflation in 40 years and the most expensive average gas prices in the US. All of this has created the perfect storm to make it extremely difficult to buy a home.
Since the pandemic, the real estate industry has also seen a surge in companies bidding on single-family homes with cash offers. These massive buyouts have priced out many Americans. The median house price has increased approximately 30% over the past ten years, while incomes have only increased by 11% in the same time frame. These companies buy houses to turn into rental properties and Airbnbs, which creates an imbalance for available units to buy.
How will renting forever change the industry?
1. Impact on the economy
A housing dynamic of renting forever will have ripple effects on the economy. Home ownership is considered one of the most important investments people make to build wealth in this country, so it’s not hard to imagine someone reaching retirement age and having extra rent costs instead of a mortgage paid off, making it more difficult to come around to meet. Linking the current housing market to inflation will ultimately curb people’s ability to save money. According to The economist“Americans are saving less than at any time since the financial crisis.”
On the other hand, it only becomes more lucrative to be a landlord. More rents will lead to greater demand for more investment properties, resulting in higher profits for real estate entrepreneurs. Wealth will tend to rise more for real estate investors than for others.
2. Ask for more leasing agents
If the US continues an upward trajectory for rents, there is a chance that we will see an increase in leasing agents. There will be a demand for various skills that leasing agents can provide to tenants, such as helping tenants find exclusive apartments within budget, going through leases to ensure tenants get the best deal, and helping tenants find the best deal. find rent-controlled units. In 2022, tenants will compete with limited supply and high demand, leading to upward pressure on rents. According to research from Realtor.com®in 2022, rents are expected to grow by 7.1% over the next 12 months.
3. Increasing Digital Innovation in Real Estate
I think the demand for digital innovation for rental will be necessary. Unfortunately, the real estate industry has been historically slow to make technological changes, but with the major shifts in the market, now is the time to start preparing to ensure results are unaffected. Real estate professionals have access to a plethora of real estate technology tools. The rental industry can now handle large volumes of rental requests and has a digital point of contact at every stop of a renter’s journey, from listing to signing the rental agreement.
4. Rentals are increasingly common among Multiple Listing Services (MLSs)
Currently, many rental properties managed by real estate agents do not come on a MLS, which acts as a single source of truth to manage all real estate listings in a specific local area. The high demand for rental properties and the increasing number of perpetual tenants means MLSs need to rethink how they handle rent. More renting on the MLS should result in:
• Transparency about rent and availability.
• Reduction of fraudulently stated rentals.
• Increases in brokerage fees.
• Standardization of rental data.
• Improved processes to meet the needs of a large influx of tenants.
There are over 800 MLS serving real estate agents in the US $2.4 billion commission may be lost over time due to not recording rentals on MLSs. Once rentals become commonplace on MLSs, it will be a huge financial opportunity for anyone in the real estate industry.
It is essential that real estate professionals master these issues so that they can develop plans to address them. Given Gen-Z’s tendency toward technology, professionals should push themselves to embrace technology and find ways to reduce the time and effort spent on actual and proverbial paperwork by transferring the process to tenants’ computers and mobile devices. bring. This will encourage tenants to work with them and better appreciate the skills they bring to the table.